Total demand for gold in the UAE dropped 19 percent in the second quarter of 2009 compared with a 31 percent fall in the first quarter, according to the World Gold Council (WGC). Total demand for gold in the Middle East region fell by 18 percent in the second quarter to 72 tons (total demand was up 33 percent on the previous quarter). The investment component of demand fell 31 percent to 3.8 tons, while jewelry off-take was 17 percent below Q2 2008 levels at 68 tons (demand for jewelry was up 37 percent on the previous quarter, but this was to a significant extent a seasonal improvement). The UAE saw the biggest decline in the Gulf, at 19 percent, compared with a 17 percent drop in demand in Saudi Arabia. Gold demand for jewelry and investment in the UAE in the second quarter was 21.5 tons, down from 26.6 tons in the same period last year. . While global consumption of gold jewelry, which makes up the bulk of the market in the UAE, dropped by 22 percent in the second quarter compared with the same period last year, investment gold purchases rose by 46 percent. The figures were published this week by the World Gold Council (WGC) in the Q2'09 Gold Demand Trends report. The report, which is compiled independently for WGC by GFMS the London-based consulting firm, shows that total identifiable investment demand for gold, which includes exchange traded funds (ETFs) and bars and coins. The surge in investor demand could be seen across the region, Jeffrey Rhodes, chief executive of INTL Commodities DMCC, an independent financial firm based in Dubai, told Reuters. “I think it's fair to say that the investment demand level for gold for the Middle East on the whole has been very buoyant,” he said. Investors were buying gold bars and coins and keeping them in safes, Rhodes added. “While in more developed nations like the UK and US gold securities is what investors opt for, physical gold is still king in the Middle East,” Rhodes said. Investors in the region were quickly becoming accustomed to gold as an asset class, said Rozanna Wozniak, investment research manger at the World Gold Council. “We are starting to notice a trend whereby the volume of gold investments is rising in the Middle East and with time we believe it will balance out with retail demand,” she said. Local investors had taken note of gold having outperformed many other asset classes during the downturn, Wozniak said. “Unlike other commodities gold had managed to hold its value during these difficult financial times and returns on investment were also positive.” Dubai's gold markets and shopping malls are long-established markets for gold bullion and wholesale and retail jewelry, where the trade is fuelled by strong demand from the Arab world and India, the world's number one gold market, and western tourists. Nearly 90 percent of total consumer offtake in the region is in the form of jewelry. Weakness in this sector which was down 7 percent largely offset strong growth of 139 percent in the net retail investment according to WGC data for 2008. In Middle East gold retail, consumers make up traditionally, more of the market than investors and rather than buying gold, cash-strapped consumers are selling it. But this trend may already be shifting. The economic crisis is changing the UAE gold market patterns, with individual investors buying gold for investment purposes, partly compensating for lower consumption from retail demand.
